Daily Agenda: Markets Surprised as Bank of Japan Holds Firm

U.S. markets slowest GDP growth in two years; Nikkei sell-off; Abbott Labs to buy St. Jude Medical; more earnings beats.


Kiyoshi Ota

The Nikkei stock index slid by nearly 4 percent as the yen rose sharply against major currencies after the Bank of Japan surprised traders by making no change to its massive easing program or benchmark lending rates. Bank of Japan governor Haruhiko Kuroda was widely expected to announce further experiments in negative interest rates to combat deflation but instead decided to stand pat, as he and his team assess the impact of February actions. In the accompanying statement and press conference, Kuroda stressed the central bank’s willingness to act in the future and bluntly dismissed concerns over the impact of negative rates on the balance sheets of lenders. For investors, one major question is whether the decision today by the Bank of Japan is an admission that policymakers are unsure of how much effect further easing will actually have.

U.S. GDP registers slowest pace in two years. Commerce Department GDP calculations released today revealed a slower pace of growth than expected, with the headline index expanding at an annualized pace of 0.5 percent. Consensus forecasts were for a growth ratio of 0.7 percent. Segmented data indicates that both household consumption and business investment levels were negatively impacted by concerns over global growth prospects during the period.

Medical megamerger in the Midwest. Suburban Chicago-based Abbott Laboratories announced a deal today to acquire St. Paul, Minnesota–based St. Jude Medical for $25 billion. By adding St. Jude’s heart product line to its existing arsenal, Abbott will diversify its cardiovascular franchise at a time when hospitals have been pushing for lower prices in the business.

Dow Chemical and Ford report better-than-expected earnings. Both Dow Chemical and Ford Motor Co. topped consensus analyst estimates, with stronger than expected returns for the first quarter. Midland, Michigan-based Dow, which is in the process of merging with Wilmington, Delaware’s DuPont, released results today that saw margins improve on cost cutting and asset divestitures, which offset declining sales. Strong sales of sports-utility vehicles and pickup-truck models helped Dearborn, Michigan-based Ford to exceed forecasts for the first quarter, as low fuel prices continue to provide an incentive for U.S. drivers to embrace larger vehicles.

Deutsche Bank swings to profit. Financial results released today by Deutsche Bank exceeded analyst targets, as Germany’s largest lender reported a profit for the first three months of the year. Both equity and debt trading revenues at the bank fell by a larger year-over-year margin for the period than the average among major competitors. Deutsche Bank executives expressed confidence that the firm will be able to meet capital ratio targets in the coming quarters as additional cost cutting and risk control measures are put into place.

Pharmaceutical deals in cancer segment heat up. Paris–based Sanofi announced an unsolicited offer to acquire Medivation today at a share price that would value the U.S. cancer treatment specialist at $9.3 billion. The French pharmaceutical company also revealed that Medivation had rebuffed an initial offer to discuss terms. Meanwhile, AbbVie announced today that it has executed an agreement to acquire South San Francisco-based Stemcentrx in a combined cash and stock transaction valued at nearly $6 billion. The merger will provide suburban Chicago-based AbbVie with a group of new products to offset increased competition for its core product, Humira. In addition to the equity and cash payments now, Stemcentrx shareholders will receive an additional payout if regulatory hurdles are reached for products in the company’s research pipeline.